Stimulus Act Includes COBRA Subsidy, Other Significant Employee Benefits Provisions
The American Recovery and Reinvestment Act of 2009 (also known as the Economic Stimulus Act) recently signed by President Obama on February 17, 2009, includes various provisions that will have a significant effect on the employee benefits arena. The Act provides for increases to the Health Coverage Tax Credit, increases to monthly reimbursement limits for transit passes, and additional funding for health information technology and related research. However, the most impactful provisions of the new law that will require the most action on your part are those relating to COBRA coverage – specifically, a 65% COBRA premium subsidy for eligible individuals.
New COBRA Provisions
According to the Act, the government will administer through employers a 65% subsidy of COBRA premiums for employees (and their dependents) who were involuntarily terminated between September 1, 2008 and December 31, 2009, and who meet certain other requirements. Employers will receive this subsidy from the federal government in the form of a payroll tax credit.
Additionally, employees terminated during the above time period but prior to February 17, 2009, and who do not have COBRA coverage on February 17 must be given an additional 60 days to elect COBRA and receive the premium reduction.
The subsidy does not extend the maximum COBRA coverage period of 18 months from employment termination. However, the Act does include COBRA coverage extensions for Trade Adjustment Assistance and Pension Benefit Guaranty Corporation eligible individuals.
Employer Action
Because the new COBRA rules will have several far-reaching effects on group benefit plans, employers should take the following steps to comply with the new law:
- Within 60 days of the bill’s enactment, identify employees terminated on or after September 1, 2008 and notify them (and other qualified beneficiaries) of their rights under the Act;
- Revise and update COBRA communication materials, including initial notices and notices to employees who currently have COBRA coverage informing them of the subsidy availability;
- Prepare for administering the subsidy;
- Check with Third Party Administrators, if applicable, to inquire about their specific processes for compliance with the new COBRA coverage rules; and
- Ensure the payroll department or payroll vendor is prepared to recapture the premium subsidy through a payroll tax credit.
Other Stimulus Provisions
Aside from the new COBRA provisions, the Act also includes the following provisions:
- An increase of the Heath Coverage Tax Credit from 65% to 80% for eligible individuals effective May 1, 2009, through 2010
- An increase in the monthly reimbursement limits for transit passes beginning March 1, 2009, through December 2010
- Funding for health information technology and comparative effectiveness research
If you have any questions concerning these new provisions, please contact our office at 919-403-1986.
Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.
February 18, 2009
Hill, Chesson & Woody Employee Benefit Services
194 Finley Golf Course Rd, Suite 200,
Chapel Hill, NC 27517
Phone: 919.403.1986
Fax: 919.869.2063
www.hcwbenefits.com